Kumba Iron Debt
| KIROY Stock | USD 6.29 0.03 0.47% |
Kumba Iron Ore holds a debt-to-equity ratio of 0.005. With a high degree of financial leverage come high-interest payments, which usually reduce Kumba Iron's Earnings Per Share (EPS).
Asset vs Debt
Equity vs Debt
Kumba Iron's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Kumba Iron's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Kumba Pink Sheet's retail investors understand whether an upcoming fall or rise in the market will negatively affect Kumba Iron's stakeholders.
For most companies, including Kumba Iron, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for Kumba Iron Ore, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, Kumba Iron's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that Kumba Iron's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which Kumba Iron is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of Kumba Iron to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, Kumba Iron is said to be less leveraged. If creditors hold a majority of Kumba Iron's assets, the Company is said to be highly leveraged.
Kumba |
Kumba Iron Ore Debt to Cash Allocation
Kumba Iron Ore has accumulated 340 M in total debt with debt to equity ratio (D/E) of 0.01, which may suggest the company is not taking enough advantage from borrowing. Kumba Iron Ore has a current ratio of 3.47, suggesting that it is liquid and has the ability to pay its financial obligations in time and when they become due. Debt can assist Kumba Iron until it has trouble settling it off, either with new capital or with free cash flow. So, Kumba Iron's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Kumba Iron Ore sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Kumba to invest in growth at high rates of return. When we think about Kumba Iron's use of debt, we should always consider it together with cash and equity.Kumba Iron Assets Financed by Debt
Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Kumba Iron's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Kumba Iron, which in turn will lower the firm's financial flexibility.Kumba Iron Corporate Bonds Issued
Understaning Kumba Iron Use of Financial Leverage
Understanding the structure of Kumba Iron's debt obligations provides insight if it is worth investing in it. Financial leverage can amplify the potential profits to Kumba Iron's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its cost of debt.
Kumba Iron Ore Limited, together with its subsidiaries, engages in the exploration, extraction, beneficiation, marketing, sale, and shipping of iron ore primarily in South Africa. Kumba Iron Ore Limited is a subsidiary of Anglo American plc. Kumba Iron is traded on OTC Exchange in the United States. Please read more on our technical analysis page.
Also Currently Popular
Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.Additional Tools for Kumba Pink Sheet Analysis
When running Kumba Iron's price analysis, check to measure Kumba Iron's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Kumba Iron is operating at the current time. Most of Kumba Iron's value examination focuses on studying past and present price action to predict the probability of Kumba Iron's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Kumba Iron's price. Additionally, you may evaluate how the addition of Kumba Iron to your portfolios can decrease your overall portfolio volatility.
What is Financial Leverage?
Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.Leverage and Capital Costs
The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.Benefits of Financial Leverage
Leverage provides the following benefits for companies:- Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
- It provides a variety of financing sources by which the firm can achieve its target earnings.
- Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.